Lifetime Cash Flow with Rod Khleif

Welcome to another edition of How to Build Lifetime Cash Flow Through Real Estate Investing. I’m Rod Khleif, and I’m thrilled you’re here. You guys are going get a ton of value from the gentleman we’re interviewing today. His name is Craig Cody, and we’re kind of taking up a sidebar on multi-family investing to talk about something that’s very, very important as it relates to being a real estate investor, and that’s tax planning, because nobody does it.

 

In fact myself, I’m guilty of it is well. I’m typically working backwards to try to solve problems instead of being proactive. So I thought it’d be really helpful to have Craig on the show.

 

Craig ‘s a Certified Tax Coach. He’s a CPA; been a CPA for 17 years. Actually, before that was a police officer in New York City for 17 years Craig has a CPA practice that focuses on tax planning, being proactive. Craig, welcome to the show, buddy.

 

Oh, thank you very much for having me.

 

Absolutely. You also co-authored an Amazon best seller called Secrets of A Tax Free Life. That’s on Amazon and I know you’ve got a gift for my listeners that we’ll talk about here in a little bit. I appreciate you being on the show.

 

You’ve had a tremendous amount of training in tax strategy and being proactive. So I’d like to dig right, and get right into what my listeners need to know. As you know, my listeners are aspiring and or even very successful multi-family real estate investors. So what is tax planning?

 

Tax planning is looking for ways to take advantage of the tax code for things that you’re already doing and making those things deductible legally.

Most CPAs and accountants, they don’t do tax planning. They’re typically, recording history instead of making history. They’re looking in the rearview mirror. So when you plan you’re looking for ways to help your clients keep more of what they make.

 

Right. Right. Okay. Like in the case with my CPA, my own CPA, it’s always the last minute. We’re always going back and trying to fix anything that might have happened and I’m guilty of it. I know a lot of you guys that are listening are guilty of it as well of not being proactive, and taking steps to maximize all the benefits that are available.

 

I will tell you. I did step out of that a little bit last year and did some things that we’ll talk about, here on the show that really helped me. But this is so important for those of you listening to be proactive; to get ahead of the curve, because there’re so many deductions in the tax code that people don’t take advantage of that are right there. We’re going talk about those.

 

Let me ask you this, Craig, what would you say is the biggest mistake that you see, or some of the mistakes you see real estate investors making, tax related?

 

Number one is they fail the plan.

 

Okay.

 

That could be wrong entity choice. That could be, very often we see people holding all their real estate in their own name or maybe inside of one entity. That entity may be an LLC or maybe a corporation or an S corporation. That’s typically not a good idea, but not taking the time to plan, not working with all your advisers.

 

Let you attorney, and your financial advisor and your CPA communicate. They should want to communicate. There’s a lot of good reasons for them to communicate. That’s in their best interest.

 

Absolutely. Now, I want go back to something you just said about entity choice. Now, I’d just like to get your opinion on this, what I tell my listeners, ideally you want your properties in property specific LLCs. Now, the only difference to that is if it’s just a duplex, you could put a handful of those in one. But if you’re buying a larger property, at least, let’s say commercial property.

 

Commercial would be five units or more. If it’s five units or more, I’m going to tell you every single time, put it in it’s own specific LLC. And then you’re going to have each one of these properties in a property specific LLC, and then my suggestion is you have a holding company LLC that owns the membership interests in the property specific LLCs. Is that a good strategy?

 

It’s a good strategy. Having multiple in one entity has it’s own downside.

 

Right.

 

We’ve actually had a client where they owned them personally and they were $25,000 properties. She was sued for mold-induced injury, and apparently, there’s a cap on insurance for mold, which was only up to 25,000, and the jury award was $150,000. So as she sells each of the other properties the checks go to the person who sued her.

 

Well, there you go guys, I will tell you, when I had 800 houses and multiple apartment buildings here in Florida. The apartments buildings were always in individuals, but I had some times as many as 20, 25 properties in an LLC.

That’s a horror story that you just described, and that absolutely could have happened to me when I was like that. If you want to be super careful then put each one on it’s own LLC because you’re not going to be paying for multiple tax returns if they all feed into a holding company. Correct? Craig?

 

Correct. If they’re all single member LLCs and they’re flowing into one holding company, then you have one tax return. So you need to keep the same books and records like everybody else but there’s no extra cost there.

 

Okay.

 

Depending on the state you’re in, it depends. In New York it may cost you $1,500 for an LLC, but we have clients in Pennsylvania and it’s about $150. If you look at that investment…

 

Yeah. Here in Florida, it’s very inexpensive. Yeah, I know New York’s is crazy. I think California gets pretty expensive as well. But they also have these new LLCs where it’s almost like you can have multiple LLCs inside of the same LLCs. I’m not too up to speed on those yet but I’ve been hearing about those.

 

Yes. And, I don’t think that’s been tested in court yet either.

 

Okay.

 

They’re called Series LLCs.

 

Yeah. That’s right, series.

 

Like I said, you kind of look at what’s the cost. Is it worth it or it’s not worth it?

 

Right.

 

Especially, if you’re doing plenty. When you’re doing that, just get that LLC form then put it in and then you’re okay.

Yeah. Most states, you can just form them online.

 

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